It seems (WSJ) Microsoft is facing much the same problem Pepsi faced in the 70s, when it created the famous Pepsi challenge (a blind taste test between Coke and Pepsi):
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A stark sign of the challenge Yusuf Mehdi faces as a point man for Microsoft in the company's battle with Google comes from the company's own research into the habits of consumers online.

During regular "blind taste tests," in which Microsoft asks randomly-selected consumers to score the quality of results from various Internet search engines, the quality of Microsoft's search results have so improved that people can't tell the difference between Microsoft and Google search results, says Mr. Mehdi, senior vice president of Microsoft's online audience business group. But when Microsoft slaps the Google brand name on the results from Microsoft's own search engine during another portion of its tests, users invariably score them highest.

"Just by putting the name up, people think it's more relevant," he says.

... Microsoft still faces the problem of the strong association in consumers' minds between Google and Internet search. In theory, it's far easier for a consumer to switch Internet search engines than it is for them to switch other forms of software. But Mr. Mehdi-a veteran of the Web browser wars of the late 90s in which Microsoft managed to overtake the pioneer in the category, Netscape Communications-says in reality it's very hard to convince consumers to change their search behavior.

So, Microsoft faces an uphill battle. Happily for the Internet marketplace, it seems they're embracing the challenge cheerily by attempting to kill two birds with one stone: launching an innovative new semantic search engine capable of answering users' questions more directly while also creating a fresh new brand for what Microsoft acknowledges is a "confusing jumble of brand names for its search efforts." I, for one am looking forward to Microsoft's forthcoming search engine, dubbed "Kumo."

But I think there's a bigger lesson here: Google's most valuable asset is its brand.

Sure, much of the strength of its brand may lie in the intangible irrationalities of human psychology: Microsoft's search engine will probably have to be significantly better than Google's before the software giant can begin regrowing its 8% share of the search market. However unfair this might seem to Microsoft, consider how Google reached this height of brand power: by offering consumers a number of terrific products (for free!) and by carefully cultivating a reputation not just of coolness (think Google Lunar X-Prize) but of "Don't be evil"-ness. Many ridicule that motto and attack Google for trying to take over the world, as we've detailed in our ongoing Googlephobia series. But consider what Google stands to loose by offending consumers: the brand power that makes consumers keep coming back to its search engine. Google's reputation as helpful, cool and "non-evil" is perhaps just as valuable as Coke's secret formula. So why would Google risk throwing that away by offending real sensitivities about, say, its privacy practices?

Some might fear that the equation of the term "google" with "Search" could permanently entrench Google in a position of dominance in the search market (think "Kleenex" in the market for facial tissue). Such worriers might be surprised to learn that Google actively discourages the "genericization" of the term "Google"--the use of "google" as a synonym for all search, just as Kleenex is commonly used for tissue paper, Xerox for copying and Coke for soda. The reason? Under trademark law, a company can lose its unique rights to its trademark if that term becomes sufficiently generic--a catastrophe for a corporation commonly referred to as "genericide." Thus, Google is actively working to check the very phenomenon that gives its products special appeal.

It's by no means a perfect solution. Microsoft, Yahoo! and others will still have to work extra-hard to overcome Google's brand appeal. But there is a certain elegance to the fact that existing laws provide some competitive check on the marketplace without the need for government regulation or an antitrust lawsuit.